IT & ITeS Industry in India

May, 2013

Introduction

The information technology (IT) and information technology enabled services (ITeS) industry has been one of the key driving forces fuelling India’s economic growth.

India is one of the fastest-growing IT services markets in the world, with three-quarters of large Indian enterprises planning to increase IT spending in 2013, with an average IT budget of US$ 12.2 million, according to a survey by Gartner.

The Indian IT-business process outsourcing (BPO) sector including the domestic and exports segments continue to grow from strength to strength, witnessing high levels of activity both onshore as well as offshore. The companies continue to move up the value-chain to offer higher end research and analytics services to their clients. India's leadership position in the global IT and BPO industries are based primarily on the following advantages.

Market Size

The Indian IT and ITES industry has continued to perform its role as the most consistent growth driver for the economy. Service, software exports and BPO remain the mainstay of the sector. Over the last five years, the IT and ITES industry has grown at a remarkable pace. A majority of the Fortune 500 and Global 2000 corporations are sourcing IT and ITES from India and it is the premier destination for the global sourcing of IT and ITES accounting for 55 per cent of the global market in offshore IT services and garnering 35 per cent of the ITES/BPO market.

India's IT and BPO sector exports are expected to grow by 12-14 per cent in FY14 to touch US$ 84 billion - US$ 87 billion, according to Nasscom.

The Indian IT infrastructure market is projected to grow by 9.7 per cent y-o-y to reach US$ 2.1 billion in 2013.

Nasscom has created a separate unit to drive its newfound enthusiasm for software products, and has set a target of US$ 10 billion in revenues from software products by 2020.

Investments

EMC Corporation's investment in India is expected to reach US$ 1.5 billion by 2014. The company started its journey in India with a modest investment of US$ 100 million in 2005.

Some of the major investments in the sector are as follows:

D-Link plans to set up a testing lab in India in the second half of this year to ensure better localisation, said Mr A P Chen, Chairman, D-Link

Hexaware Technologies has set up an onshore delivery centre in Texas, US. The centre is its third onshore delivery centre in the US

NIIT Technologies has won a multi-year contract from the Airports Authority of India (AAI) worth Rs 344 crore (US$ 61.84 million) for the implementation of Airport Operations Control Centres (AOCC)

The Software Technology Parks of India (STPI) plans to set up a data centre in Hyderabad. The centre will address the storage and cloud needs of small and medium enterprises (SME)

Wipro has signed an agreement to acquire a minority stake in Opera Solutions, a global big data and analytics company, for about US$ 30 million

Government Initiatives

FDI up to 100 per cent under the automatic route is allowed in Data processing, software development and computer consultancy services; Software supply services; Business and management consultancy services, Market Research Services, Technical testing & Analysis services.

The Government of India's move to do away with the mandatory requirement of 10 hectares of minimum land area for setting up an IT and ITeS special economic zones (SEZ) is expected to provide a major boost to the real estate and IT sector.

Some of the major initiatives taken by the Government to promote IT and ITeS sector in India are:

The Government of West Bengal plans to spend Rs 41 crore (US$ 7.37 million) to roll out citizen-centric services electronically across 19 districts including Kolkata

Kerala has set an ambitious target of becoming a cent per cent digital state in governance, said Mr P K Kunhalikutty, Minister for Industries and Information Technology, Government of Kerala. The State has around 600 small, medium and large IT firms employing over 80,000 professionals directly and nearly three times the number indirectly

The Cabinet has recently approved the National Policy on Information Technology 2012. The policy aims to increase revenues of IT and ITES industry from US$ 100 billion to US$ 300 billion by 2020 and expand exports from US$ 69 billion to US$ 200 billion by 2020

The Government of India plans to set up 15 new laboratories for testing hardware and software products under public-private partnership (PPP) model

The Ministry of Finance has issued a circular to chairmen of public sector banks and regional rural banks, that all payments to customers, staff, vendors and suppliers as well as disbursement of loans and payments towards investments should be made only through the electronic mode

Road Ahead

Globalisation has a profound impact in shaping the Indian IT industry over the years with India capturing a sizeable chunk of the global market for technology sourcing and business services. Over the years the growth drivers for this sector have been the verticals of manufacturing, telecommunication, insurance, banking, finance and of late the fledgling retail revolution. As the new scenario unfolds it is getting clear that the future growth of IT and ITeS will be fuelled by the verticals of climate change, mobile applications, healthcare, energy efficiency and sustainable energy. Traditional business strongholds would make way for new geographies, there would be new customers and more and more of SMEs will go for IT application and services.

Demand from emerging countries is expected to show strong growth going forward. Tax holidays are also extended to IT sector for STPI and SEZs. Further, the country is providing procedural ease and single window clearance for setting up facilities.

Growth in offshoring is expected to outclass the growth in overall IT spend across the various verticals. Offshoring as a per cent of total spend is also expected to rise across the various verticals. India has the opportunity to tap the growing offshoring market with its cost advantage, expertise and huge talent pool.

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